Fraud Scheme Bleeds Minnesota Dry

Map highlighting Minnesota, North Dakota, South Dakota, Wisconsin.

Minnesota’s ambitious social service programs designed to help its most vulnerable residents have become targets for organized criminal fraud that has stolen hundreds of millions in federal and state funds.

Quick Take

Federal prosecutors warn that fraud schemes in Minnesota’s Medicaid programs have become so widespread and lucrative they threaten the integrity of state-administered health and social services
The Housing Stabilization Services Program, launched in July 2022 as a national first, became compromised almost immediately by sophisticated billing schemes and illegal kickback arrangements
Governor Tim Walz announced a sweeping payment freeze on 14 high-risk Medicaid programs and commissioned a $2.3 million third-party audit by Optum to detect fraudulent claims
Evergreen Recovery leaders pleaded guilty to wire fraud conspiracy involving millions in false substance abuse treatment billing and coercive kickback schemes with housing providers
The fraud crisis follows Minnesota’s $250 million Feeding Our Future scandal, revealing systemic vulnerabilities in program design and provider oversight that persist across multiple social service initiatives

Minnesota’s Pioneering Program Becomes a Fraud Magnet

When Minnesota launched the Housing Stabilization Services Program in July 2022, it represented a national first—offering Medicaid coverage for housing stabilization services to help seniors, people with disabilities, and individuals with mental illnesses maintain stable housing. The program’s innovative design caught national attention as a potential model for addressing homelessness and housing instability. Within three years, it became a cautionary tale about the dangers of rapid program expansion without adequate fraud detection infrastructure.

The state’s ambitious expansion of social services created unprecedented opportunities for criminal exploitation. Multiple Medicaid-funded initiatives across housing, substance abuse treatment, and autism services developed similar patterns of fraud, suggesting systemic rather than isolated problems. Federal prosecutors have warned that schemes became so widespread and lucrative they now threaten the integrity of state-administered health and social services programs.

How Evergreen Recovery Exploited Vulnerable Clients

The Evergreen Recovery case exemplifies the sophistication of fraud schemes targeting Minnesota’s social service programs. Leaders Shantel Magadanz, Heather Heim, and Shawn Grygo systematically overbilled the Department of Human Services and managed care organizations like UCare for substance abuse treatment services that were never actually delivered. They added client names to counselor logs after the fact and falsified backdated records to create the appearance of services provided.

The scheme extended beyond simple billing fraud into coercive arrangements that directly harmed vulnerable clients. Evergreen steered hundreds of clients to Second Chances Sober Living, a housing provider controlled by one of Evergreen’s owners. Clients received free housing only if they agreed to attend Evergreen programming that was billed to Medicaid but often never occurred. Employees who raised concerns were “silenced, shut down, or lied to regarding the lawfulness of Evergreen’s practices,” according to plea documents. Magadanz and Heim pleaded guilty to conspiracy to commit wire fraud in October 2025.

A Pattern of Massive Fraud Across Multiple Programs

Minnesota’s Medicaid fraud crisis did not emerge in isolation. The state had previously experienced the “Feeding Our Future” scandal, which involved the swindling of $250 million in federal funds meant to feed children during the pandemic. This precedent should have prompted heightened vigilance, but new programs continued to be vulnerable to similar exploitation. The pattern reveals systemic weaknesses in program design, provider vetting, and claims verification processes that persist across multiple initiatives.

Federal prosecutors identified hundreds of millions of dollars in fraudulent claims across various schemes. The fraud targeted programs specifically designed to serve Minnesota’s most disadvantaged populations—seniors, people with disabilities, individuals with mental illnesses and substance use disorders, and people experiencing homelessness. Resources intended to provide essential services were systematically diverted to fraudulent billing schemes and illegal kickback arrangements.

Governor Walz’s Emergency Response

In late November 2025, Governor Tim Walz announced a comprehensive response to the fraud crisis: a payment freeze on 14 high-risk Medicaid programs lasting up to 90 days and a $2.3 million contract with Optum, a health services and technology company, to conduct a one-year analysis of Medicaid claim data. Walz stated: “We cannot effectively deliver programs and services if they don’t have the backing of the public’s trust. In order to restore that trust we are pumping the brakes on 14 programs that were created to help the most disadvantaged among us, yet have become the target of criminal activity.”

The state will maintain compliance with federal 90-day payment requirements while claims undergo review. Optum will flag suspicious billing patterns, abnormally high billing, and missing documentation to the Department of Human Services for verification. Claims flagged as suspicious will be referred to DHS’s Office of Inspector General for investigation. Temporary Human Services Commissioner Shireen Gandhi emphasized: “We’re taking a systematic approach to finding and stopping fraud. Adding outside review before payments go out and increasing safeguards for these high-risk services will preserve resources necessary to serve Minnesota’s children, people with disabilities and older adults.”

The Real Cost of Fraud

The fraud crisis threatens the viability of innovative social service programs that were designed to address genuine needs. The Housing Stabilization Services Program, which was a national model, has been moved toward termination due to widespread fraud allegations. This represents a significant setback for housing policy innovation and may discourage other states from implementing similar programs. Vulnerable populations face reduced access to services and potential program terminations while the state implements fraud detection mechanisms.

Legitimate service providers now face increased administrative burden, delayed reimbursement, and potential loss of revenue during the payment pause. Minnesota taxpayers bear the financial burden of both the fraud losses and the increased administrative costs of fraud prevention. The fraud undermines public trust in social service programs and threatens the credibility of the Walz administration’s social service initiatives during a period of intense political scrutiny.